Module 14: Marketing Globally

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Reading: Globalization Benefits and

Challenges

Defining Globalization
Globalization is a term used to describe how countries, people and
businesses around the world are becoming more interconnected, as forces
like technology, transportation, media, and global finance make it easier
for goods, services, ideas and people to cross traditional borders and
boundaries. Globalization offers both benefits and challenges. It can
provide tremendous opportunity for economic growth to improve the
quality of life for many people. It can also lead to challenges with the
welfare of workers, economies, and the environment as businesses
globalize and shift their operations between countries to take advantage
of lower costs of doing business in other world regions.

Watch the following short video for an overview of globalization and its

impacts.

Globalization, Economic Growth and Market Opportunity

Globalization creates opportunities for many countries to experience
economic growth. Economic growth is the increase in the amount of the
goods and services produced by an economy over time. It is
conventionally measured as a percentage change in the Gross Domestic
Product (GDP) or Gross National Product (GNP). These two measures,
which are calculated slightly differently, total the amounts paid for the
goods and services that a country produced. As an example of measuring
economic growth, a country that creates $9,000,000 in goods and
services in 2010 and then creates $9,090,000 in 2011 has a nominal
economic growth rate of 1 percent for 2011.

A way of classifying the economic growth of countries is to divide them

into three groups: (a) industrialized, (b) developing, and (c) less-
developed nations.

 Industrialized nations have economies characterized by a healthy

climate for private enterprise (business) and a consumer orientation,
meaning the business climate focuses on meeting consumers’ long-
term wants and needs. These nations have high literacy rates,
modem technology, and higher per capita incomes. Historically,
 industrialized nations include United States, Canada, Japan, South
Korea, Australia, New Zealand, and most Western European nations.
Newly industrialized countries include Russia and most other eastern
European countries, Turkey, South Africa, China, India, and Brazil,
among others.
 Less-developed nations, also known as least-developed countries
(LDCs) have extensive poverty, low per capita income and standards
of living, low literacy rates, and very limited technology. Often these
nations lack strong government, financial, and economic systems to
support a healthy business community. Their economies tend to be
focused on agriculture and production of raw materials (such as the
mining and timber industries). There are many less-developed
nations in the world, with most located in Africa and Asia.
 Developing nations are those that are making the transition from
economies based on agricultural and raw-materials production to
industrialized economies. They exhibit rising levels of education,
technology, and per capita incomes. Governments in these nations
typically have made strong progress to improve the climate for
business in order to attract business and economic investment. There
is a growing list of developing nations, including many countries in
Latin America and Asia.
Usually, the most significant marketing opportunities exist among the
industrialized nations, as they have higher levels of income, one of the
necessary ingredients for the formation of markets. However, market
saturation for many products already exists in these nations.

The developing countries, on the other hand, have growing population

bases, and although most import a limited number of goods and services
from other countries, longer-term growth potential exists in these nations.
Often, marketers in developing nations must be educators, using
marketing techniques to education populations about unfamiliar, new
products and services and the benefits they provide. As the degree of
economic development increases, so does the sophistication of the
marketing effort focused on a country.

Figure 1, below, illustrates nations and regions according to their

economic growth prospects. Darker green areas indicate where the
strongest growth opportunities currently exist, as of 2011.
Figure 1: GDP growth rate by country: Shading indicates expected rate of
economic growth in 2011.

Benefits of Globalism for Business

Those in favor of globalization theorize that a wider array of products,
services, technologies, medicines, and knowledge will become available,
and that these developments will have the potential to reach significantly
larger customer bases. This means larger volumes of sales and exchange,
larger growth rates in GDP, and more empowerment of individuals and
political systems through the acquisition of additional resources and
capital. These benefits of globalization are viewed as utilitarian, providing
the best possible benefits for the largest number of people.

For global companies, often referred to as multinational corporations

(MNCs), common benefits of expanding into developing markets include
unsaturated demand for new products, lower labor costs, less expensive
natural resources, and other inputs to products. Technological
developments have made doing business internationally much more
convenient than in the past. MNCs seek to benefit from globalism by
selling goods in multiple countries, as well as sourcing production in areas
that can produce goods more profitably. In other words, organizations
choose to operate internationally either because they can achieve higher
levels of revenue or because they can achieve a lower cost structure
within their operations.

MNCs look for opportunities to realize economies of scale by mass-

producing goods in markets that have substantially cheaper costs for
labor or other inputs. Or they may look for economies of scope, through
horizontal expansion into new geographic markets. If successful, both of
these strategies lead to business growth, with stronger margins and/or
larger revenues. There is particularly strong opportunity for business
growth in markets where strong economic growth is also projected. In
these areas, incomes are rising. In many cases, local populations can now
afford goods and services that were previously out-of-reach, including
many good produced in industrialized countries. Global companies stand
to capture stronger growth and profitability if they can make headway into
these markets.

At the same time, international operations contain innate risk in

developing new opportunities in foreign countries.

Challenges of Globalism for Business

Along with arguments supporting the benefits of a more globally
connected economy, critics question the ethics and long-term feasibility of
profits captured through global expansion. Some argue that the expansion
of global trade creates unfair exchanges between larger and smaller
economies. They argue that MNCs and industrialized economies capture
significantly more value because they have more financial leverage and
can dictate advantageous terms of exchange, which end up victimizing
developing nations. Critics also raise concerns about damage to the
environment, decreased food safety, unethical labor practices in
sweatshops, increased consumerism, and the weakening of traditional
cultural values.
 

As MNCs do business in new global markets, they may encounter several

significant challenges:
 Ethical Business Practices: Arguably the most substantial of the
challenges faced by MNCs, ethical business practices in areas such
as labor, product safety, environmental stewardship, corruption, and
regulatory compliance have historically played a dramatic role in the
success or failure of global players. For example, Nike’s brand image
was hugely damaged by reports that it utilized sweatshops and low-
wage workers in developing countries. In some nations, particularly
those without a strong rule of law, bribing public officials (e.g., paying
them off with gifts or money) is relatively common by those seeking
favorable business terms. Although national and international laws
exist to crack down on bribery and corruption, some businesspeople
and organizations are pressured to go along with locally accepted
practices. Maintaining the highest ethical standards while operating
in any nation is an important consideration for all MNCs.
 Organizational Structure: Another significant hurdle is the ability
to efficiently and effectively incorporate new regions within the value
chain and corporate structure. International expansion requires
enormous capital investments in many cases, along with the
development of a specific strategic business unit (SBU) in order to
 manage these accounts and operations. Finding a way to capture
value despite this fixed organizational investment is an important
initiative for global corporations.
 Public Relations: Public image and branding are critical
components of most businesses. Building this public relations
potential in a new geographic region is an enormous challenge, both
in effectively localizing the message and in the capital expenditures
necessary to create momentum.
 Leadership: It can be difficult for businesses to find effective
organizational leadership with the appropriate knowledge and skills
to approach a given geographic market successfully. For every
geography worldwide, unique sets of strategies and approaches
apply to language, culture, business networks, management style,
and so forth. Attracting talented managers with high intercultural
competence is a critical step in developing an effective global
strategy.
 Legal and Regulatory Structure: Every nation has unique laws
and regulations governing business. MNCs need access to legal
expertise to help them understand in-country laws and comply with
applicable regulations. It is important for businesses to understand
the legal and regulatory climate for their industry and type of
organization before entering a new market, so that this information
can be factored into the business case and strategic decisions about
where and how to expand globally, as well as strategic and
operational planning to ensure profitability.

Potholes in Poland: Poor road infrastructure can be difficult for businesses that rely on road
transportation.

For organizations operating in developing and less-developed countries,

additional challenges can arise, particularly in the following areas:
  Infrastructure: Infrastructure includes the basic physical and
organizational structures needed for a society to operate and for an
economy to function. It can be generally defined as the set of
interconnected structural elements that provide a framework
supporting an entire structure of development, such as roads,
bridges, water supply, sewers, electrical grids, telecommunications,
and so forth. It also includes organizational structures such as a
stable government, property rights, judicial system, banking and
financial systems, and basic social services such as schools and
hospitals. A country’s infrastructure will help determine the ease of
doing business within that nation. For example, a country with poor
road conditions and intense traffic may not be the best place
to conduct business that requires goods to be transported from city
to city by land. Poor infrastructure makes it difficult for businesses to
operate effectively because they have to shoulder additional cost and
risk to make up for what the country’s society does not provide.
 Technology: The level of technological development of a nation
affects the attractiveness of doing business there, as well as the type
of operations that are possible. Companies may encounter a variety
of technological challenges doing business in foreign countries, such
as training workers on unfamiliar equipment; poor transportation
systems that increase production and distribution costs; poor
communication facilities and infrastructure; challenges with
technology literacy; lack of reliable access to broad-band Internet
and related technologies that facilitate business planning,
implementation, and control.
All of these factors–both benefits and challenges–should go into decisions
about whether and how to expand globally. Marketing, along with other
business functions, can be affected for better or for worse by the
advantages and disadvantages posed by global business. Organizational
leaders must consider carefully how to balance costs and risks against the
potential for gain and growth.

Check Your Understanding

Answer the question(s) below to see how well you understand the topics
covered in this outcome. This short quiz does not count toward your
grade in the class, and you can retake it an unlimited number of times.

Use this quiz to check your understanding and decide whether to (1) study
the previous section further or (2) move on to the next section.